IMA: Pensions high on the political agenda

I have just got back from the parallel universe that is the Liberal Democrat Party conference.

To be fair that description could apply to any political party conference, it just so happens that the Liberal Democrat one is always the first.

The topic of the week for us financial services types was pensions. What else was it going to be after the announcement of the next big idea – pensions-for-property?

The detail has yet to be thought through (of course) but the LibDems suggest that parents pledge to pay a proportion of their offspring’s house deposit from their pension pot – but the deposit would only be paid out on the pension becoming payable.

The mortgage lenders are, therefore, supposed to offer mortgages on the basis of this promise.

While this may sound appealing – the minister sold it as a win-win-win, as parents get their kids out of the house, kids get out of the house and the housing market moves – there should be alarm bells ringing when it is widely known that the average pension pot is nowhere near enough to pay out a decent income in retirement let alone be used for something other than providing a retirement income.

Anyway, it got good headlines and generated lots of debate. Isn’t that the aim of conference announcements?

The other big theme on the pensions front was auto-enrolment and what it would ultimately mean.

This week sees the official start of auto-enrolment – by the end of the six year roll out it is hoped that between 6 and 8 million people who do not have any pension savings now will then do so.

Of course, the critics were out in force. We are told it is the wrong time to be doing this, small businesses can not afford it (especially in the current climate), individuals simply can not afford to “lose” any more of today’s wage and lock it away for years, or it is just another tax on individuals and so on.

Yes, there are difficulties but ultimately we have got to get beyond them and see auto-enrolment as a necessary step towards improved levels of pension saving and better income in retirement for many people who would otherwise be reliant on the state pension which should be viewed as a, not the only, source of basic income.

We are all going to live longer and the state pension will not provide most people with the income they need or want to sustain their current lifestyles. The message surely must be that it is worth the sacrifice now in order to ensure a more comfortable retirement? And the earlier you start to save the easier it will be to build up a decent pension pot.

Amid all the posturing someone did ask where financial advisers stood on the whole auto-enrolment debate? In effect, did they care? I would suggest you do.

The pipe dream is that auto-enrolment leads to a new culture and understanding of the need for and benefits of long-term saving. A culture where people routinely talk of their pension saving in the same way as those in the US talk of their 401k. A culture in which people save not only in a pension but in other investment products. A culture in which many more people seek financial advice. We can but hope.

Mona Patel is head of communications at the Investment Management Association

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14th August 20182:45 pm

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